Over the past couple of years, many have been sucked-in by a
lot of bullshit economic pseudo-analysis from GOPers and misdirected Dems parroting totally false, Wall Street-centric memes and baseless "conventional wisdom" about our Great Recession. Gradually, the obfuscated truths are finally coming to the fore.
This morning, Yves Smith picks up where respected economist and NetRoots Nation guest Mike Konczal left off a week ago, explaining that the widely-accepted, Orwellian theme of "structural unemployment" is completely bogus.
(Konczal
irrefutably demonstrates that the statistical facts tell us that the jobless downturn--which is significantly and adversely affecting
all business sectors, not just construction--was a direct byproduct of Wall Street's stripmining of Main Street's mortgage marketplace, and is/was due to a general lack of demand that is still extremely pervasive throughout our society. However, he demonstrates that there is no "skills mismatch" in the marketplace [i.e.: the basic concept behind the structural unemployment meme]; and that it's just another Wall Street excuse for offshoring jobs and/or cutting pay/hours on Main Street among those who've been able to hold onto their jobs until now.)
Meanwhile (and dovetailing quite directly with Konczal's just-released study), a business lede in Saturday's NY Times also brings forth the reality that the entire "consumer deleveraging" story -- wherein, despite very large, year-over-year increases in poverty in the U.S., since the Great Recession commenced in late 2007, along with three decades of declining middle class wages, we're all now, somehow, miraculously paying down our credit card debt -- was a complete fabrication, too! (The banks have just acknowledged that virtually all of the modest, supposed downturn in utilized consumer credit is directly, and virtually exclusively, attributable to Wall Street chargeoffs of consumers' accounts. In other words, we're officially hearing, for the first time from Wall Street, that the public's really not paying down their credit card debt, virtually at all!)
"I'm shocked! Shocked, I say!"
Covering both of these topics in reverse order, here's the intro to a piece from Saturday's NY Times on Wall Street's most recent epiphany that, contrary to their two-year-old myth, further perpetuated by the Federal Reserve's coverage of these statistics during this time, consumers have not been willfully deleveraging as far as their credit card debt is concerned. (You REALLY have to read this piece in its entirety. The self-evident bullshit from the TBTF banks is just completely over-the-top!)
From "Bank Losses Lead to Drop in Credit Card Debt:"
Bank Losses Lead to Drop in Credit Card Debt
By CHRISTINE HAUSER
New York Times
September 25, 2010
The substantial drop in credit card debt in the United States since early 2009 has been widely attributed to newly frugal consumers. But analysts say that a significant portion of the decline is actually the result of financial institutions writing off billions of dollars in credit card debt as losses.
While consumers have done their part by shying away from exceeding new credit limits and turning increasingly to debit cards, the question is to what extent are consumers voluntarily reducing their balances, and to what extent are banks making the decision for them.
The answer has wide implications for the broader economy as banks try to determine whom to extend credit to -- and how much -- and as businesses try to adapt to the changes in consumers' spending patterns.
"There is a lot of debate going on right now among economists," said Cristian deRitis, the director of credit analytics with Moody's Analytics, which is studying the issue. "Is there truly deleveraging or are charge-offs removing a lot of balances?"
Again, read the entire piece to understand what pathetically obvious spin is occurring here. You'll come across transparently obvious comment such as this:
Bank of America's chief executive officer, Brian T. Moynihan, said in April that consumer loan balances were down $37 billion from a year earlier, with $34 billion of that reduction the result of charge-offs. But Mr. Moynihan said he expected future credit card losses to be lower.
Then there's this type of double-speak (in this instance from GE), which totally ignores the reality that HALF of all consumer and small business revolving credit was brutally slashed by these TBTF Wall Street firms during this time period.
Even private label cards, or those that can be used only at a single retailer, report an improvement. The largest issuer of such cards, General Electric, said delinquencies and charge-offs were lower in the second quarter of 2010 than in the previous quarter and year. "U.S. consumers are by and large deleveraging," said Stephen White, a spokesman. "They are buying less and electing to make purchases more often with debit cards..."
Here's a summary of what I had to say in my diary from Saturday concerning this travesty:
# # #
The next time you read, hear or see the monthly governmental reports about the level of consumer credit dropping by a few billion here, or five or ten billion there, please realize that this is, virtually entirely, a Wall Street-created meme about consumer "deleveraging." (Actually, it's a Federal Reserve-created meme, to be more precise.) While technically accurate, it only tells us a very small portion of what has actually happened--and is still happening--as far as the ongoing evisceration of small business and consumer credit on Main Street is concerned.
First off, here are a couple of examples of the typical proofiness bullshit meme you've been reading, hearing and seeing in the MSM over the past couple of years. This one's from MSNBC: Consumer borrowing plunges by $15.7 billion.
And here's another example of how this misdirecting meme is furthered throughout our society; this time, from Calculated Risk, from October 2nd, 2009: "Consumer Credit Declines Sharply In August." In this second instance, it tells us that consumer credit declined by just under $12 billion in August 2009.
What the reader isn't being told, however, is that this is simply a story of UTILIZED consumer and small business credit (the amount of credit actually used by the public). It tells us nothing as far as what's happened/happening with regard to the AVAILABLE CREDIT LINES in the small business and consumer marketplace. In other words, utilized credit is simply the amount (in dollars or in percent) of credit outstanding as a numerator over the denominator, which is total credit available (in dollars or in percent) to the small business and consumer public.
Thinking of it in personal terms, if you have a credit card with a $25,000 credit line on it, and you have an outstanding balance of $5,000 on the card, you've utilized $5,000, or 20% of your available $25,000 (100%) credit line.
From my post here on DKos on October 8th, 2009 (just a couple of weeks shy of one year ago):
More Gov't, Wall St. And MSM Lies: Consumer Credit, Savings
bobswern
Daily Kos
October 8, 2009 7:57:57 AM
...This is what REALLY happened...
Since the "Great Recession" started, the too-big-to-fail Wall Street firms have already cut consumers' credit lines by $1.25 trillion. (Remember what I told you, a few paragraphs above, in terms of what we've been seeing playing out on Main St.?) And, these are the same lines being used by all those mom-and-pop small businesspeople out on Main Street, as well. From, arguably, the leading and most prescient stock and consumer credit analyst on Wall Street, Meredith Whitney: "The Credit Crunch Continues..."
(Apparently, over the past year, the Wall Street Journal blog changed the location of this Ms. Whitney's story to points unknown. So, the link I maintained to it in my original diary no longer functions.)
At this point in my diary from last year, I went into a detailed description of what happens to a consumer or a small business owner when a credit card company decreases their credit line, thus increasing the small business owner's and/or consumer's rate of credit utilization. Generally speaking, their credit score drops. (If you're interested in the slightly more wonkish details on this, simply click on over--link provided above--to my diary from last year. I'm sure you'll find it enlightening.)
Now, here's the REAL story, sans "proofiness," from highly-respected Wall Street analyst, Meredith Whitney: "The Consumer's Credit Card Capacity Collapse; R.I.P. U.S. Middle Class Purchasing Power"
The Consumer's Credit Card Capacity Collapse; R.I.P. U.S. Middle Class Purchasing Power
Zero Hedge 11/24/2009 23:34 -0500
Even as the government has taken on leadership roles in virtually every segment of the financial and corporate arena, and we see the impact of excess central bank liquidity every single day not in pass-thru lending by the major commercial banks, but in the price of Amazon stock which is now trading at Strong Conviction Lunatic Buy levels, there is yet one segment that the government is powerless to manipulate, no matter how hard CNBC tries (with its constantly declining audience each month the administration could have chosen a more popular medium to brainwash the masses). And, unfortunately for Obama, it is the one segment that is critical to this economy improving: the US consumer, which until recently accounted for 75% of America's GDP, and by implication, almost a third of world GDP.
The recurring problem: continued massive credit contraction - seen every month not only in the government's G.19 report, but direct from the horse's mouth: the big credit card companies. The most recent picture is indeed gloomy. After total unused credit card lines peaked at $4.7 trillion in Q2 2008, the number has plunged to $3.5 trillion: a $1.2 trillion evaporation of consumer purchasing power. The flipside- utilization rates continue to rise as the actual amount borrowed on credit cards is also declining, but a much slower pace. According to the FDIC's just released report, there was $784 billion borrowed between credit card loans and securitization receivables. The U.S. consumer is not only retrenching, but banks continue to limit credit card purchases, which further constrains spending, creating a vicious deleveraging, and thus deflationary, loop.
We present data by bank for the four main credit card institutions as well as for the entire credit card lending segment in its entirety.
We learn that Bank of America cut 37% of their available credit card lines, down to $572 billion, from a Q2 '08 peak of $914 billion.
CHART: Bank of America Credit Card Commitment and Utilization Rate
At Citigroup, lines were cut down to $815 billion from a peak of $1.13 trillion.
CHART: Citi Credit Card Commitment and Utilization Rate
At JPMorgan Chase, 26% of all consumer and related small business credit lines were cut, down to $584 billion from a peak of $785 billion.
CHART: JPM Credit Card Commitment and Utilization Rate
And Discover dropped lines down to $174 billion.
CHART: DFS Credit Card Commitment and Utilization Rate
Combining the "Big 4" demonstrates just how badly the credit contraction has impacted the major banks, which are obviously in cash hording mode, and are making life for the average consumer that much more difficult as utilization rates are forced to increase (presumably at higher accompanying rates and fees) while overall unitilized capacity collapses.
CHART: "Big 4" Credit Card Commitment and Utilization Rate
Expanding this analysis to the entire credit card industry demonstrates a comparable trend: utilization rates have hit history highs at over 18% while the total CC commitments have dropped, as noted above, from $4.7 trillion to $3.5 trillion.
CHART: Total Credit Card Commitment and Utilization Rate
And, readers should realize this was just a reference to the period from mid-2008 through Q3 '09! As Meredith Whitney informed us (over at the WSJ) at the time:
Considering that $1.2 trillion has been cut since 2Q08, we believe that by the end of 2010, $2.7 trillion of lines will be expunged from the system. We believe unused lines will be reduced by $2 trillion, to an estimated $2,700B by 4Q09, and nearly $2.7 trillion to an estimated $2,011B by 4Q10. Concurrently, we believe the utilization rate will increase from 17% at 4Q08 to 23% by 4Q09 and 30% by 4Q10.
Meanwhile, until just this weekend, the MSM and the Federal Reserve have been putting forth the meme, during this entire time, of consumers and small businesses "deleveraging."
It's important to note that the maximum loss rates of most TBTF consumer credit portfolios during this same period were in the 15% range (of course, there were a few exceptions to this ceiling, but most consumer credit portfolio loss rates have been significantly less than 15% during this time period).
So, in response to Main Street's declining economic fortunes over the past couple of years, Wall Street pulled the draconian move of stripping roughly HALF of all consumer and small business credit during this same period.
Shifting from Wall Street's draconian obliteration of Main Street revolving credit debt over the past 24 months, we now segue into the fatcats' obfuscations of truths elsewhere in our economy. Specifically, in this second instance, as far as the true underlying issues are concerned as they relate to our corporatocracy's ongoing efforts to demolish the American middle class.
Here's Yves Smith, over at Naked Capitalism, earlier this morning, with a complete takedown of the entire "structural unemployment" meme: "Orwell Watch: "Structural Unemployment" As Excuse to Do Nothing."
# # #
(Diarist's Note: Naked Capitalism Publisher Yves Smith has provided written authorization to the diarist to reproduce her blog's posts in their entirety here on Daily Kos.)
Orwell Watch: "Structural Unemployment" As Excuse to Do Nothing
Yves Smith
Naked Capitalism
September 26, 2010 2:32AM
The spin-meisters continue to package things that ought to incite outrage in anodyne wrappers in the hope no one will look inside. "The new normal" and "structural unemployment" join the universe inhabited by such gems as "extraordinary rendition" and "pre-emptive strike".
"New normal" is particularly insidious, since it implies that we must accept current conditions, since they are "normal" hence it would be abnormal and/or require exceptional effort to experience anything else. "New" acknowledges things have changed, but "new" usually has positive connotations, and masks the fact that pretty much nobody except the banksters and some members of the top 1% are exactly keen about present conditions. It also had no footprint of how things changed; if you didn't know what it stood for, it could just as easily be used to describe a dramatic natural shift, for instance, how the weather changed in the wake of the Krakatoa eruption.
"Structural unemployment" is not only sneaky, but also downright misleading. The catchphrase is meant to convey that unemployment just can't be helped, it results from fundamental problems in the job market. Now since we have on average something like one job opening for every five unemployed people, even if structural unemployment was a real phenomenon, it is far from sufficient in explaining why we have U6 unemployment at over 16%.
I had been planning to write about this, and it turns out other people are on to this wee bit of branding. Per reader Francois T:
As you pointed out a while ago, Washington has not shown great urgency with the high UE rate. That is in part understandable, since our political elites has a negative attitude toward the needs of low income people, which have been hit much harder than anyone else during this recession.
But you can't say things like "We don't like you and you suck" to a large swat of the electorate. So, a justification, a narrative was needed. In came the "New Normal" the new "Structural Unemployment" that, God knows how, let alone why, has settled in during this Great Recession. Why did entire sectors of the economy employed X people at the beginning of 2007, and suddenly and for the foreseeable future (say 5, 10, 20 years...who knows?) said sectors would only need Y (where Y< X ) people. We are generous here, since we're assuming the previously alluded to sectors would survive. So, that is that: UE shall be high, suck it up (thank you Charlie Munger for the unsolicited advice...moron!) and get used to it.
The narrative behind the "structural unemployment" spin goes something like "there really are jobs, but those crappy workers, they don't have the skills (i.e., as in they didn't work hard enough at the right stuff earlier in their life) or they are in the wrong location." We've seen the MSM dutifully take up this narrative, and had readers point out that in many cases, the "jobs are going a begging" is due to companies making such lowball pay offers that they are coming up short on takers.
Two (in a way, three) articles debunk this idea. The first is an IMF study, which concludes that the housing bubble implosion has far more to do with unemployment than a skills mismatch. Mike Konczal has a nice write-up, and he's a bit peeved because he had worked up an analysis from what he saw as better underlying data and had wanted to refine it further before releasing it. But bottom line, he and the IMF independently come to the same conclusions. Mike is entertainingly annoyed in his lead in:
When IMF experts put the United States' so-called "structural unemployment" under a microscope they find that the large majority of this is the result of the massive of wave foreclosures and underwater mortgages and only a small part is related to skills/education mismatch.
The real problems are far more likely issues of TARP not having created a cramdown provision, second-liens being over-valued on the stress test and community groups like ACORN fighting against foreclosures being under-funded and under attack, not that we aren't `shocking' teacher's benefits or getting a pair of pliers and a blowtorch and getting medieval on the minimum wage's ass or whatever feverish dreams constitutes our elite's thoughts about the unemployed lucky duckies.
Here's his money chart: (See "Homeowners Deep Underwater vs. Unemployment" Chart in linked IMF document, three paragraphs above.)
So get this:
This [IMF] paper shows that a large majority of structural unemployment is the result of underwater mortgages and foreclosures. In addition, when foreclosures are added into the regression alongside SMI, SMI loses some of its value, and when a cross term is added skills loses a bit more. Right now, the story is one of foreclosures.
So groups that fight foreclosures, say what many over-worked and under-paid community organizers do now, are groups that fight to reduce structural unemployment for everyone. Same with those trying to get cramdown and right-to-rent and better short sales. Which is a worthwhile thing to be doing.....
Bonus: Let's say that Bank of America drove a truck full of chemicals into a town square and proceeded to burn the chemicals. The toxic fumes of these chemicals caused a statistically significant number of workers to be so sick that they ended up not able to work and detached from the labor force and forced major costs onto municipalities. We'd tax the hell out of BoA for burning those chemicals, right? Externalities and all that.
So let's replace "burning toxic chemicals" with "foreclosures." It's the same story....So why aren't we taxing the hell out of foreclosures?
Yves here. I know some readers will start on the "deadbeat borrower" theme, but there are three reasons this is wrongheaded:
1. Earth to readership, normal behavior in creditor land is to restructure debts of borrowers who get in trouble IF the borrower is viable at a level that is better than liquidation. Given massive loss severities right now (60%-70% if not higher with foreclosure costs included), you'd think this would be happening. But the servicers who make the decision to foreclose are NOT the creditors. They get paid to foreclose, they don't get paid to mod (and the HAMP subsidies are way too low to induce then to change behavior other than to scam the program).
2. Many borrowers are victims of servicing errors, even predation. Servicers, in contraction of federal law, will apply a payment first to fees (say late charges) and then to the regular amount due. Servicers have also been found to hold checks to make them late. So say a payment is treated as late, because it was delayed in the mail (your routine mailing date allowed too little room for error), or servicer chicanery or incompetence. You are treated as late, you are charged a fee AND may also incur an interest penalty. The fee is taken out first, usually on the next month payment. So that one is short, since the fee comes off the top, hence treated as late. So more fees.
Servicers typically don't tell people their payments are late. This sort of thing goes on 6-7 months and by that point, the borrower is several thousand dollars in the red. The borrower may not be able to come up with the extra amount, or reluctant to (it will disappear into the maw of the servicer, dream if you can straighten out the improper fee charging practices). The borrower is on his way to foreclosure.
3. Some borrowers are also victims of origination fraud. Most borrowers who are behind on payments don't fight to keep the house (indeed, the whole strategic default meme says it even makes sense for borrowers who can afford their house to walk away). But some were steered into taking mortgages they could not afford, and some will try, when foreclosed upon. to get their story heard. There have been many variants of bad originator behavior, the biggie being the borrower being told deal terms, not having the sophistication to check the documents at closing, and signing for a completely different deal (and this isn't a matter of education level but finance savvy: I heard of a PhD being sold a 30 year fixed rate and signing for an option ARM). I'm in the process of getting cases, but there are instances of borrowers signing commitment letters, then being told they had to accept the deal on greatly worse terms because it had already been financed, and if they didn't, they'd be sued into oblivion.
The Economic Policy Institute also found the structural unemployment case sorely wanting and has its own lengthy report to back it up:
A better explanation for high unemployment is that there are simply not enough jobs to go around...
Consider the evidence. Manufacturing capacity fell to 71.6% in June 2010 from 79.1% in December 2007. Vacancies in commercial offices now stand at 17.4%. Total demand in the second quarter of 2010 is still below its pre-recession level......
The claim of extensive structural unemployment presumes that millions of workers are now inadequately prepared for available jobs even though they were fruitfully employed just a few months or years ago.
Let's look at that line of thinking from a few different angles:
Productivity, Technology Investment: Productivity did grow a pretty spectacular 6.3% from early 2009 to early 2010, but that was the extent of productivity growth since the recession started in late 2007. Net investment in business equipment and software in 2009 (the latest data) was actually negative, for the first time since World War II. This alleged structural transformation of production processes that left four to five percent of the labor force inadequate for the available jobs was clearly not associated with new equipment or new technological processes.
Location: If all of the country's unemployed workers were to relocate to states with low unemployment, there would still not be enough jobs to go around. There are only 11 states -- with a total adult population of about 17 million -- where the unemployment rate in June was less than 7.0%. If all the unemployed moved to those states they would nearly double the labor force there.
Construction: It is true that construction has suffered in this downturn, losing nearly two million jobs, or 25% of all private-sector jobs lost. But this is not what is fueling the unemployment problem. Figure A shows that in the second quarter of 2010, unemployed construction workers comprised 12.4% of the unemployed and 12.5% of the long-term unemployed: They are no more likely to be long-term unemployed than those displaced from other sectors. Even before the recession, in 2007, unemployed construction workers were 10.6% of all unemployed and 11.0% of the long-term unemployed...
In fact, one of the curious aspects of this misguided theory of structural unemployment is how hard it is to find any research tying this story to actual detailed trends in employment, unemployment or output data.
So I hope at a minimum when you read "structural unemployment" your bullshit detectors will now go off and you'll start reading for where the logic or data are questionable. Generalizing from isolated cases and making them seem representative is sadly all too common in the mainstream media.
# # #
As many reading this already know, I've been writing about these and many other inconvenient truths about our economy since prior to the start of the economic downturn, almost three years ago. 20/20 hindsight is finally bringing about clarity which points to the fact that there's been a lot of truthiness, "proofiness" and "disestimation" (my post from yesterday) shoved down our throats by the status quo, ever since.
The upshot of all of this -- which is further supported by yet another story in today's NY Times -- is nothing short of a reaffirmation that well-thought-out, federally subsidized jobs programs (which, lo and behold, are actually being supported by both Republicans and Democrats, as demonstrated in today's Times' article) might, in fact, be the silver bullet our society needs to get us out of this unemployment hole, now. Regrettably, this piece from today's NY Times, "Job Loss Looms as Part of Stimulus Act Expires," is about the potential termination of what may very well have been the single most effective billion dollars spent by our government out of the entire stimulus program!
I've been following the story about this highly-successful jobs program for almost three months. From my diary on July 9th, "Radically Simple," where I discussed Bob Herbert's NY Times column from July 3rd, "A Jobs Program That Works."
In other words, our country's jobless problem is NOT structural. There are tons of highly-skilled folks languishing in our unemployment lines with the training and experience necessary to fill these "skilled" positions, immediately. The only real barrier here is corporate America's willingness to pay them a living wage and to aid homeowners in their effort to maintain mobility to move wherever those jobs might be (instead of keeping them chained to an underwater mortgage); as opposed to the corporatocracy's ongoing efforts to pressure the American worker into submission to, effectively, lower their standard of living vis-a-vis Wall Street's baseless rants regarding a nonexistent "structural unemployment problem!"